1. GOODS AND SERVICE TAX REPORT OF THE JOINT COMMITTEE ON BUSINESS PROCESSES FOR GST ON REFUND PROCESSES 1 CA JAYESH RAWAL By : CA Jayesh Rawal Mob: +91 9029044954

2. SITUATIONS WHERE REFUNDS WOULD ARISE: 1. Excess payment of tax due to mistake or inadvertence. 2. Export 3. Finalization of provisional assessment 4. Refund of Pre – deposit for filing appeal including refund arising in pursuance of an appellate authority’s order 5. Payment of duty / tax during investigation but no/ less liability arises at the time of finalization of investigation / adjudication 2 CA JAYESH RAWAL

3. SITUATIONS WHERE REFUNDS WOULD ARISE: 6. Refund of tax payment on purchases made by Embassies or UN bodies 7. Credit accumulation due to output being tax exempt or nil-rated 8. Credit accumulation due to inverted duty structure i.e. due to tax rate differential between output and inputs. 9. Year-end or volume based incentives provided by the supplier through credit notes. 10. Tax Refund for International Tourists 3 CA JAYESH RAWAL

4. 1.EXCESS PAYMENT OF TAX DUE TO MISTAKE OR INADVERTENTCE: Such excess payment may be on account of: wrong mention of nature of tax (CGST / SGST / IGST), wrong mention of GSTIN, or wrong mention of tax amount. In first two situations The taxpayer may file a refund application which should be decided within a period to be prescribed by the GST Law The tax administration is required to verify the correctness of the taxpayer’s claim. In the third situation Automatically carried forward for adjustment against future tax liabilities Refunded on submission of application 4 CA JAYESH RAWAL

5. 2.WHEN GOODS / SERVICES ARE EXPORTED GST regime separately discussed the following due to their inherent nature EXPORT OF GOODS EXPORT OF SERVICES DEEMED EXPORT OF GOODS OR SERVICES 5 CA JAYESH RAWAL

6. 2.1EXPORT OF GOODS Presently under the Central Law, every exporter has three options available for neutralization of taxes paid on inputs Obtaining non duty paid inputs Obtaining duty paid inputs and claiming refund Obtaining duty paid inputs, availing the input tax credit thereon and exporting finished goods after payment of duty and thereafter claiming the rebate of the duty paid on exported goods. 6 CA JAYESH RAWAL

7. 2.1EXPORT OF GOODS In the proposed GST regime, exports are proposed to be Zero rated The GST to be paid on the inputs will be refunded either through cash or by utilization of input tax credit This would serve two objectives The ITC chain through the various dealers will not be broken The exporter of the finished goods will get the refund of the GST paid on the inputs 7 CA JAYESH RAWAL

8. 2.1EXPORT OF GOODS Option to procure duty free inputs for exported goods should not be available in the GST regime. Online Export Verification process is proposed to simplify and fasten the refund process IEC details will be captured during registration Refund of ITC will be granted on submission of application Online verification of actual export through ICEGATE of custom administration 8 CA JAYESH RAWAL

9. E XPORT VERIFICATION 9 CA JAYESH RAWAL Normally Documents Required Verification under new system Shipping BillCan be verified through ICEGATE Mate’s Receipt / Transporter’s Challan Scanned copies of the same with online refund application Export invoice(Details included in shipping bill) Packing list(Details included in shipping bill) Bill of Lading/ Airway BillScanned copies of the same with online refund application Bank Realization Certificate (BRC). Submission of BRC may not be insisted as exporter has time period of 1 year for remittance of export proceeds. (e-BRC module may be integrated in the Refund process under GST )

10. 2.2EXPORT OF SERVICES Export of services there are no custom documents that can substantiate the occurrence No shipping bill is required to be filed Documents that can substantiate the occurrence of event of exports. Invoice Bank Realization Certificate (BRC) Hence it is recommended that BRC would be required before sanction of refund of GST paid on inputs (input services) 10 CA JAYESH RAWAL

11. 2.3DEEMED EXPORT OF GOODS OR SERVICES There is a concept of deemed export for situations listed in Chapter 8 of the Foreign Trade Policy. Domestically produced duty paid goods when supplied to EOUs / SEZs / Projects under International Competitive Bidding (ICB) / Mega Power Plants / World Bank Funded Projects It is recommended that the deemed export need to be treated on equal footing as export 11 CA JAYESH RAWAL

12. DEEMED EXPORT - E XECPTIONS Suppliers will pay IGST on Deemed Exports and can claim refund, only IGST is not collected from recipient. Recipient should not avail ITC in respect of such supplies (Verification will be required) Chartered Accountant Certificate – certifying non- passing of GST burden, being claimed as refund along with refund application Self-declaration may be allowed below certain limit 12 CA JAYESH RAWAL

13. R EFUND ON E XPORT G ENERAL R ECOMMENDATION It is recommended that partial refund may not be allowed and entire refund claim may be sanctioned within the time limit laid down in the GST Law Certain goods on which Customs Export Duty may be leviable, ITC of GST paid on inputs may not be admissible. 13 CA JAYESH RAWAL

14. 3.FINALIZATION OF PROVISIONAL ASSESSMENT In the proposed GST regime the returns of the taxpayer will be electronically filed. In the return itself there should be a field for indicating whether the tax being paid is provisional or final. In case the tax has been paid on provisional basis, there should be a drop box that would indicate the reasons for which the tax has been paid on provisional basis. 14 CA JAYESH RAWAL

15. 3.FINALIZATION OF PROVISIONAL ASSESSMENT Thereafter the return may be taken up for finalization once the issue involved in provisional assessment is settled GST law may prescribe time period for finalization i.e. 90 days and this time line should not be breached, as far as possible. The refund would be granted only if the incidence of GST paid by him has not been passed on to the consumer Chartered Accountant’s Certificate certifying the fact of non-passing of the GST burden by the taxpayer. Self-declaration may be allowed below certain limit 15 CA JAYESH RAWAL

16. 4.REFUND – ARISES DUE TO A PPEALS Refund need to be paid unless the jurisdictional authority has obtained a stay from the higher appellate authority. GST Law may provide for certain predefined period during which refund may not be granted, regarded as the mandatory waiting period for the outcome of the appeal / application for stay. Powers to senior level for withholding the refund in exceptional cases on the condition that interest at appropriate rate has to be paid. 16 CA JAYESH RAWAL

17. 5.R EFUND OF TAX PAID DURING INVESTIGATION BUT NO LIABILITY ARISES If the GST Law does not debar suo-motto payments during investigation / audit process. And ultimately no / less demand arises. Amount of tax paid during investigation become non leviable once the investigation is finalized. Taxpayer should be immediately eligible to claim refund of the amount that is found to have been paid in excess during investigation. The taxpayer may file a simple refund application along with a Chartered Accountant’s Certificate (or Self- declaration) certifying the fact of non-passing of the GST burden by him. 17 CA JAYESH RAWAL

18. 6.R EFUND TO G OVERNMENT AND UN B ODIES Presently the UN and Government bodies are eligible for refund of taxes paid by them at the time of purchases made by them from the market UN Bodies may be assigned a unique identification number (ID) the structure of which would be uniform across the States in conformity with the GSTIN Structure While making supplies to such bodies, the suppliers must indicate the Unique ID on the invoices. 18 CA JAYESH RAWAL

19. 6.R EFUND TO G OVERNMENT AND UN B ODIES The UN Bodies may file their purchase statements (without purchase invoices) along with their claim for refund. The net claim will be related to GST paid on total purchases minus GST paid on ineligible purchases 19 CA JAYESH RAWAL

20. 6.R EFUND TO G OVERNMENT AND UN B ODIES The refund may be granted based on the matching and the limited manual verification unmatched invoices will get marked by the IT system and the supplier will be notified accordingly. The personal purchases by the staff may also be done seeking ID of the UN body on the invoice 20 CA JAYESH RAWAL

21. 7. R EFUND DUE TO ITC ON T AX FREE GOODS Certain goods or services which may be either exempted or NIL rated in GST regime Certain goods or services which may not be brought under GST regime Persons supplying such exempted / nil rated / non-GST goods or services would be receiving goods or services as their input supplies after payment of GST. 21 CA JAYESH RAWAL

22. 7. R EFUND DUE TO ITC ON T AX FREE GOODS ITC is allowed to remove cascading and under modern VAT laws. Tax is charged on value addition only and not on tax paid at the earlier level of supply chain. Ultimate consumer is liable to bear the tax. Most State VAT administrations as well as Centre do not allow refund of ITC on inputs used for tax exempt / nil rated goods. 22 CA JAYESH RAWAL

23. 7. R EFUND DUE TO ITC ON T AX FREE GOODS It is recommended that the model GST Law may provide that the suppliers of exempted / NIL rated / non GST goods or services would not be entitled to the ITC of GST paid on inputs (including input services or capital goods) received by them and consequently for refund of GST paid by them. In case of mixed supplies, ITC may be allowed proportionately. 23 CA JAYESH RAWAL

24. 8.REFUND OF CARRY FORWARD INPUT TAX CREDIT ITC may accumulate on account of the following reasons Inverted Duty Structure i.e. GST on output supplies is less than the GST on the input supplies CASH REFUND MAY BE GRANTED AFTER DUE AUDIT Stock accumulation ITC COULD ONLY BE CARRY FORWARD Capital goods ITC COULD ONLY BE CARRY FORWARD Partial Reverse charge mechanism for certain services CASH REFUND MAY BE GRANTED AFTER DUE AUDIT 24 CA JAYESH RAWAL

25. 9.REFUND ON ACCOUNT OF YEAR END INCENTIVE AND CREDIT NOTE Such practice is being misused by the trade where the downstream dealers show negative value-additions. Some States have placed restrictions on such ITC The refund would be granted on submission of a simple application along with a Chartered Accountant’s Certificate certifying (Or Self Declaration) the fact of non-passing of the GST burden by the taxpayer ITC at the buyer’s end and the output liability at the supplier’s end will get simultaneously. 25 CA JAYESH RAWAL

26. 10.TAX REFUND FOR INTERNATIONAL TOURISTS: Nearly 52 countries have adopted such kind of refund mechanism Refund of GST will be available at designated airports and ports only A part of the eligible amount of refund will be deducted as handling fee for services rendered. 26 CA JAYESH RAWAL

27. TIME PERIOD FOR FILING OF REFUND AND RELEVANT DATE: It is recommended that a period of one year from the relevant date may be allowed for filing of refund application. It is recommended that Relevant date for filing of each kind of refund needs to be defined separately. 27 CA JAYESH RAWAL

28. O THER R ECOMMENDATION Applicant may be given the option of filing refund application either through the GSTN portal or through the respective State / Central Tax portal. It is recommended that the State Tax authorities shall deal with the SGST refund Central Tax authorities shall deal with refund of CGST and IGST It is recommended that the preliminary scrutiny may be carried out within 30 common working days Deficiency, if any, should be communicated to the applicant directly from the respective tax portal. Applicant may file his reply through the respective tax authority portal / GSTN. 28 CA JAYESH RAWAL

29. O THER R ECOMMENDATION Applicant may file his reply through the respective tax authority portal / GSTN. Any further queries should be raised only with the approval of higher authorities so that unnecessary queries are avoided. Once the refund application is found to be complete in all respect, the same may be communicated to applicant via SMS and e mail and the date of communication shall be considered as the relevant date for the purpose of time limit prescribed for sanctioning of refund and initiation of interest clause. 29 CA JAYESH RAWAL

30. O THER R ECOMMENDATION If the refund is not found to be legal or correct for any reason, then the jurisdictional authority should issue Show Cause Notice (SCN) to the applicant. The refund will be kept in abeyance in the system till the SCN is adjudicated. In case, the refund application is found to be in order but does not satisfy the test of unjust enrichment, the refund amount, after sanction, would be credited to the Consumer Welfare Fund. It is recommended that an amount in the range of Rs. 500-1000/- may be fixed shall not be granted. 30 CA JAYESH RAWAL

31. INTEREST: It is recommended that the GST Law may provide for a prescribed time limit of 90 days from the date of the system generated acknowledgment of refund application within which refund has to be paid. It may also be provided in the GST law that, interest clause will start automatically once the prescribed time limit for sanctioning of refund has been breached. The Committee recommends that the rate of interest in case of refund may be around 6% and that in case of default in payment of interest may be around 18%. To discourage refund sanctioning authority from rejecting refund claims on frivolous grounds, interest will accrue from the last date when refund should have been sanctioned. 31 CA JAYESH RAWAL

32. THANKS AND REGARDS CA J AYESH R AWAL M OB : +91 9029044954 E MAIL : J AYESH. RAWAL @JRAWAL. COM CA JAYESH RAWAL 32